Cryptocurrency markets
To date Bitcoin and cryptocurrency markets have been under-explored
Bitcoin and cryptocurrency markets contain a considerable speculative component and are extremely volatile
•We use econophysics models to examine shocks and crashes in cyptocurrency markets
•We examine competition between rival cryptocurrencies and find evidence of a spillover from Ripple to Bitcoin
•The extent to which law enforcement and government measures can affect Bitcoin markets appears mixed
In this paper we draw upon the close relationship between statistical physics and mathematical finance to develop a suite of models for financial bubbles and crashes. The derived models allow for a probabilistic and statistical formulation of econophysics models closely linked to mainstream financial models. Applications include monitoring the stability of financial systems and the subsequent policy implications. We emphasise the timeliness of our contribution with an application to the two largest cryptocurrency markets: Bitcoin and Ripple. Results shed new light on emerging debates over the nature of cryptocurrency markets and competition between rival digital currencies.
Keywords
- Bitcoin;
- Ripple;
- Cryptocurrencies;
- Bubbles;
- Negative bubbles;
- Econophysics
